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Chapter 24: Q14QS (page 1084)

A company is considering investing in a new machine that requires a cash payment of \(47,947 today. The machine will generate annual cash flows of \)21,000 for the next three years. Assume the company uses an 8% discount rate. Compute the net present value of this investment. (Round your answer to the nearest dollar.)

Short Answer

Expert verified

The net present value of the machine will be $6,172

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of net present value

The net present value is defined as the difference between the cash inflows and the present value of cash outflows.

02

Computation of net present value

Cash flow

Select chart

Amount

X

PV factor

=

Present Value

Annual Cash flow

Present value of the annuity

$21,000

X

2.5771

$54,119

Immediate cash outflow

-47,947
Net present value

$6,172







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